Q+A Bank 6 Q6.4 (iii)

[Snowy]

Hi,
I'm rusty on some of these reinsurance calculations, can anyone please assist?

1) The current surplus agreement
- how to get the INCR and IGCR for 2008 and 2009?

How come it's not 2008 INCR (61406/98566), 2008 IGCR (97514/131421), 2009 INCR (63472/99956) and 2009 IGCR (98667/128976)?

2) The quota share agreement
- do we have to allow for any claims which have already been paid in these calculations of Reinsurance premiums and recoveries?

I tried using the 812,364 and 6,374,306 etc as claims already paid in these calcs, but I don't get the correct answers. Any help?

3) The quota share plus XOL together
- how to get the INCR figures here? I did RR/RP but didn't get the answers. How come this doesn't work here, or where am I going wrong?


Thanks for any help.

 

[Steve McIntosh]

Hello

I think what's stumping you on these is that you haven't allowed for the fact that the case estimates include a 10% surplus (this is mentioned in part (ii)), and so you have to strip this out of the claims incurred figures in arriving at the "best estimate" loss ratio figures. The gross and net claims incurred figures have been reworked to allow for this, and it is these that are used in the ICNR and IGCR figures shown in the solution.

The adjustments are explain near the foot of p11 of the solution.

1) Calcs are therefore (I think!) 2008 INCR (60544/98566), 2008 IGCR (91163/131421), 2009 INCR (62923/99956) and 2009 IGCR (94598/128976)?

2) I don't think you need allow for claims alrady paid. Again, you need to allow for the 10% surplus on o/s claims. e.g. RR is simply 20% of the adjusted gross claim incurred figs used in the above. See the worked example at the end of the "Quota share" sub-section on p12.

3) If you use the adjusted net claim figs, I think this will help.

Personally, I think this question is a good bit beyond what I'd expect for ST8, but hopefully still good preparation.

Hope this helps.

 

[Snowy]

Hi Steve,

Thanks for your reply.

For 3) I used the adjusted figures, but I don't seem to get the same numbers as the solutions for the last 2 years. Can you describe exactly what figures to use.

Thanks a lot

 

[Duncan Brydon]

Hi

You need to look at (adjusted NCI)/NWP to calculate the INCR figures.

The NWP is just 78% of the GWP.

Firstly, take your GCI, adjusted to allow for the 10% surplus. You want the corresponding adjusted NCI given by

Adjusted NCI = Adjusted GCI – RR.

The RR comes from the quota share and risk XL contracts. The RR from the quota share is just 20% of the adjusted GCI. For the RR from the risk XL contract, you need to look at the table of large losses given (remembering to adjust for the 10% surplus).

This gives the INCRs for the last two years shown in the solution.

I hope this helps.
Duncan